Friday, February 09, 2007

Loaning a life

Microcredit aims to alleviate poverty and help world peace

By Jason Chesworth

… Money is power. Money is security. Money is freedom. It’s the difference between living on the slope of a volcano and being safe in the garden of the Hesperides. And there is the continual pleasure of making more of it, which is quite easy if you have plenty to start with. I can turn a million into two million much more easily than a poor woman can turn five pounds into ten, even if she could get the five pounds to begin with. It turns itself, in fact.

– from The Millionairess by G.B. Shaw

From November 12 – 15, 2006, international dignitaries, economists and microfinance providers congregated at the Global Microcredit Summit in Halifax bringing, arguably, the most press attention to the cause in the history of microfinance.

Microcredit “poster boy” Muhammad Yunus rode in on what Summit Campaign Director, Sam Daley-Harris, called “a tsunami of positive recognition” in reference to Yunus being jointly awarded the Nobel Peace Prize along with the Grameen Bank he founded, just weeks prior to the conference.

The excitement surrounding the event was not what you would necessarily expect of a 3-day conference discussing the economics of poverty. The story was covered by all the large media outlets due to the new visibility awarded to Yunus and the microcredit movement after the Nobel Committee’s announcement, even prompting the CBC’s Nancy Wilson to admit in a televised interview with Yunus that she, “hadn’t known anything about microcredit” prior to hearing about the award. To be sure, Nancy Wilson isn’t alone in her latent understanding of the issue, as she is most certainly in the majority in that regard.

What does a Nobel Prize for microfinance and microcredit do for world peace? During one conference Yunus said, “… what the prize has done to us was something very important. Not only (has) it increased the visibility and attention of people around the world and the policy makers around the world, it has established one thing. It is a link between poverty and peace … poverty has been identified as a threat to peace.” And how exactly does microcredit aid in the elimination of poverty? Through “the provision of small loans to very poor people for self-employment or other income-generating activities”, as stated by The Microcredit Summit Campaign that defines the world’s “poorest” as “any of the 1.2 billion who live on less that US$1 a day.”

The basic principle is that, through the lending of a sum of money that is typically less than $200, a woman living in poverty may be afforded the opportunity to take a skill such as sewing, raising livestock etc., and turn it into a profitable enterprise with capital that has not been previously available to her through the traditional banks due to lack of assets.

In other words, because a family living in Bangladesh cannot afford to buy chickens with less than US$1 a day, they are unable to produce eggs to sell for money in order to buy more chickens to sell more eggs … you get the picture. Microcredit makes what was previously impossible, possible.

"Conventional banks look at what has already been acquired by a person," said Yunus, "Grameen looks at the potential that is waiting to be unleashed."

The idea of lending to the very poor based on their lack of collateral has received much criticism during the last 30 years, but proponents of microfinance assure that the system has a repayment rate that reaches past 95% in most cases. Many advocates maintain that the high rate of repayment is due to the fact that most loans are now awarded to women, for the reason that women have proven to be more financially responsible given their dedication to family and community. And community is truly what the microfinance movement is creating.

According to Fund Their Future, a UK-based charity which helps the poor by supporting the work of many microfinance institutions (MFIs) around the world, “MFIs organise their members into self selected groups of 5 borrowers. Loans are made to individuals in the group but future loans to any person are dependant upon the performance of the others in the group. So there is enormous peer pressure to repay the loan. Group members often help each other if an individual is having a difficult time. But also most borrowers are immensely proud of what they do and want to make a success of it. For many it is the only way out of poverty.”

With the two new goals announced at the 2006 Summit -- 1) to reach 175 million of the world’s poorest by 2015 and, 2) to achieve having 100 million families move from below US$1 a day -- we can give more than just hope to making the statements of Shaw’s millionairess an idea of the past.